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ACCC targets gas market reforms

Prashant Mehra

Australia's competition watchdog has blamed the lack of new gas supplies, poor competition in the pipeline sector and ineffective regulation for creating a difficult environment in the domestic gas market.

The problems have been compounded by the arrival of large, export-focused liquefied natural gas projects, a slide in oil prices and regulatory hurdles for exploration activities, ACCC Chairman Rod Sims has told a conference in Sydney.

"In this environment, commercial and industrial gas users, particularly, have had a difficult time," he said in a speech on Wednesday.

The observations come a month before the regulator is due to hand a report to the federal government after a year-long inquiry into the east coast gas markets.

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The Australian Competition and Consumer Commission has been looking at the gas market after complaints from users about an opaque trading market, lack of competition and rising prices.

Mr Sims said many gas suppliers were choosing to send gas to the Queensland-based LNG projects for export. He said more supply sources, for southeastern Australia in particular, are needed to limit gas prices.

The ACCC, in its preliminary observations in September, blamed the presence of the LNG projects for permanently changing pricing conditions in the gas market.

The regulator said there seemed to be inadequate regulation for natural monopolies like gas transmission pipelines, and also pointed out that just three owners dominate transportation in east coast gas, with APA Group holding a near 50 per cent interest in the sector.

"Likely ineffective regulation of pipelines is of particular concern because monopoly pricing can lead to inefficient downstream investment decisions and can limit investment in upstream exploration," Mr Sims said.

He said a lack of capital due to a collapse in oil prices, and increasing restrictions on exploration of onshore gas in NSW and Victoria had led to a situation where domestic gas prices were rising even as international prices fall.

The inquiry report, which follows more than 30 hearings with gas producers, retailers and customers, will highlight inefficiencies that can be addressed and will discuss where new policy or better-informed policy decisions may be needed, ACCC said.